IHT Nil-Rate Band Planning UK 2026: Reduce Your Estate Tax Bill
The nil-rate band is frozen at GBP 325,000 until 2030 while house prices rise. Here is how to use the NRB, RNRB, transferable allowances, and gifting rules to legally cut your inheritance tax bill.
Inheritance tax (IHT) is charged at 40% on the portion of an estate above the available threshold. With the nil-rate band frozen and house prices at elevated levels, more estates than ever are being pulled into IHT. Understanding and planning around the available allowances is not tax avoidance -- it is sensible estate management.
The Nil-Rate Band (NRB)
The nil-rate band is the amount each individual can leave free of inheritance tax. For 2026/27 this is GBP 325,000 -- unchanged since 2009 and frozen until at least April 2030.
Everything above the NRB is taxed at 40%, subject to reliefs and exemptions. On a GBP 600,000 estate with no other planning, the IHT bill would be 40% of GBP 275,000 = GBP 110,000.
The Residence Nil-Rate Band (RNRB)
The residence nil-rate band adds up to GBP 175,000 on top of the NRB when you leave a qualifying main residence to direct descendants. Direct descendants include children, stepchildren, grandchildren, and their spouses.
For a single person who leaves their home to children, the combined threshold is GBP 325,000 + GBP 175,000 = GBP 500,000.
The taper: The RNRB reduces by GBP 1 for every GBP 2 the net estate exceeds GBP 2,000,000. At GBP 2,350,000 and above, the RNRB is entirely lost.
Transferable Nil-Rate Bands for Couples
When a spouse or civil partner dies and leaves everything to the surviving partner, assets pass free of IHT through the spouse exemption. Crucially, the unused NRB and RNRB can be transferred to the survivor.
A couple where neither has used any of their allowances can therefore combine:
- NRB: GBP 325,000 x 2 = GBP 650,000
- RNRB: GBP 175,000 x 2 = GBP 350,000
- Combined threshold: up to GBP 1,000,000
The transferred allowances are expressed as a percentage of the allowance in place at the time of the first death, applied to the rate in force when the second spouse dies. In practice, since the bands have been frozen, this usually means a straightforward doubling.
The Spouse Exemption
Transfers between spouses and civil partners are entirely free of IHT, both during lifetime and on death. This exemption is unlimited for UK-domiciled couples. There is a limit of GBP 325,000 where the recipient is not UK domiciled, though elections exist to treat a non-domiciled spouse as UK domiciled for IHT purposes.
The 7-Year Rule and Taper Relief
Gifts to individuals are called Potentially Exempt Transfers (PETs). If you survive for 7 years after making a PET, it falls out of your estate entirely. If you die within 7 years, the gift is brought back into your estate calculation.
Taper relief reduces the tax on gifts made between 3 and 7 years before death:
| Years before death | Reduction in tax |
|---|---|
| 0 to 3 years | 0% |
| 3 to 4 years | 20% |
| 4 to 5 years | 40% |
| 5 to 6 years | 60% |
| 6 to 7 years | 80% |
Note: taper relief reduces the tax on the gift, not the value of the gift itself. If the gift is within the remaining NRB, there is no tax to taper.
Annual Exemptions
Several small exemptions allow tax-free gifting each year without the 7-year clock starting:
- Annual exemption: GBP 3,000 per tax year (unused portion can be carried forward one year)
- Small gifts: GBP 250 to any number of separate individuals per year
- Gifts on marriage: GBP 5,000 from each parent, GBP 2,500 from grandparents, GBP 1,000 from others
- Normal expenditure out of income: Gifts that form part of a regular pattern and are met from income (not capital) are fully exempt with no limit -- but must be genuinely regular and leave the donor with enough income for their normal lifestyle
Business Property Relief and Agricultural Property Relief
Business Property Relief (BPR) can reduce the taxable value of qualifying business assets and shares in unlisted companies by 50% or 100%. Agricultural Property Relief (APR) does the same for qualifying agricultural property.
From April 2026, the government has proposed capping 100% relief under BPR and APR at GBP 1,000,000 per individual, with excess assets attracting 50% relief. This is a significant change for farmers and business owners and worth reviewing with a professional adviser.
Practical Planning Steps
Start gifting early. The 7-year clock starts from the date of the gift. The earlier you begin making meaningful gifts, the more likely they are to become fully exempt.
Use your annual exemptions every year. GBP 3,000 per year over 20 years is GBP 60,000 removed from your estate free of IHT.
Consider a will review. An out-of-date will can waste allowances unnecessarily. Leaving assets to children on first death rather than the survivor can sometimes use the first spouse's NRB more efficiently, though this needs careful consideration.
Life insurance written in trust. A whole-of-life policy written in trust pays out to beneficiaries outside the estate, providing funds to meet an IHT bill without adding to the taxable estate. The premiums may also qualify as normal expenditure out of income.
Pension reform from April 2027. The government has announced that most unused pension pots will be brought into the IHT estate from April 2027. This changes the calculus for those who planned to leave pensions untouched. Review your drawdown strategy before the reform takes effect.
With the nil-rate band frozen and house price inflation continuing, proactive planning is more valuable than ever. Even modest steps taken early can make a meaningful difference to what your family ultimately receives.
Frequently asked questions
What is the inheritance tax nil-rate band in 2026?
The nil-rate band (NRB) remains at GBP 325,000 for 2026/27 and is frozen at this level until at least April 2030. No inheritance tax is charged on the portion of an estate within the NRB.
What is the residence nil-rate band and who qualifies?
The residence nil-rate band (RNRB) adds up to GBP 175,000 to your threshold when you leave a qualifying residence directly to direct descendants such as children or grandchildren. It tapers away by GBP 1 for every GBP 2 the estate exceeds GBP 2,000,000.
Can a surviving spouse inherit the unused nil-rate band?
Yes. Any unused NRB and RNRB from the first spouse to die can be transferred to the survivor. A couple who have each used none of their allowances could therefore have a combined threshold of up to GBP 1,000,000 before inheritance tax applies.
How does the 7-year rule work for gifts?
Gifts to individuals (Potentially Exempt Transfers) become fully exempt from IHT if you survive for 7 years after making them. If you die within 7 years, taper relief reduces the tax due on gifts made between 3 and 7 years before death.
What annual gift allowances are available?
You can give away up to GBP 3,000 per year free of IHT (the annual exemption), plus GBP 250 to any number of different recipients. Gifts on marriage, regular gifts out of income, and maintenance payments also have separate exemptions.
Related reading
Inheritance Tax in 2026/27: How the £325k and £500k Thresholds Actually Work
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